It seems that a Greek default is only hours away and, at this point, seems pretty much inevitable. I don’t see how either side has any room politically to make the major concessions the other needs to make a deal especially at this late hour and after things fell apart over the weekend.
So, assuming Greece defaults, what’s next? Obviously the markets are pretty unstable today in anticipation of this. The DOW is down 300 points last time I checked and I think the other markets around the world are equally volatile today as well. The Greek economy seems poised to crater even worse than it already has been, and from what I was reading banks and accounts in Greece and of Greek citizens have been nearly frozen to prevent runs. I don’t know what happens after that…again, from what I’ve read it seems if Greece defaults they would booted from the Euro Zone and off the Euro, though I’m not sure I follow exactly why that HAS to happen. I know the EU has been attempting to firewall itself from this very event since 2012, and supposedly they are in a much stronger position now if Greece leaves than they were before, but that it will still be quite a blow (despite the fact that Greece only makes up something like 2% of the combined economy).
So, what happens next? How will this play out? And what effect do you think this will have on the EU/EZ or the rest of the worlds economy? Will Greece, after (presumably) doing the whole Grexit thingy move into Russia’s sphere if they offer a big enough carrot? What other options would Greece have in the short or medium term? Does it even matter to the rest of Europe what Greece does after the Grexit?
I don’t have any answers. Krugman seems to think that we have already reached Peak Chaos so defaulting won’t make the situation any worse. I’m not sure I agree with that. (I may not be an Ivy-League economist, but I know a thing or two about chaos.)
Someone started an Indiego-go fund for Greece. If everyone in Europe orders a Greek salad, they’ll have 1.6 billion Euros!
If the deal is rejected in the referendum, Greece leaves the Euro (though the EU central bank could cave at the last minute). Following depreciation, things get interesting. If there’s civil unrest, Greece is screwed because a quick depreciation led recovery depends on a tourist boom. Petroleum refining won’t help because their inputs are priced in dollars. Agriculture will take years to increase. Currency depreciation can occur quickly but it usually takes some time for a better competitive position to feed its way through the economy.
The stock markets will get worried but at the end of the day the Greek economy is damn small. Attention will turn to Spain, which is not small. How are they doing? And what about China?
Also the Fed won’t raise rates this September. Maybe in December.
How could the preceding be wrong? Economic developments tend to drag out for longer than expected, after which they evolve rapidly. So I’m probably underestimating the degree of jerking around. But then again a truly quick resolution would allow a September rate hike. I don’t see that happening. That prospect is so last Tuesday.
The Greek economy goes into meltdown. The rest of the Eurozone tries to make a Greek exit from the Euro as painful as possible to deter anybody else from leaving.
Denmark will be unable to defend the Euro-Krone peg.
Portugal comes under speculative attack as it becomes clear that the ECB’s “we’ll do all we can to maintain the Euro” is essentially a lie.
Italian, Spanish and French bonds also take a hit.
Euroskeptic parties across the EU get a major boost.
At the very least, the rest of the so-called “PIIGS” (Portugal, Ireland, Italy, and Spain) might find themselves under the microscope. If they they decide to leave, then the EU is effectively done. It will become impossible to ignore that the EU is really mostly the German Economic Union.
Well, I guess the default is pretty much a done deal now…Greece is not going to pay the IMF the scheduled payment due today. They are requesting another bailout from the EZ to tide them over. And, I guess, there are more talks about possible closer ties between Greece and Russia.
What a mess. From what that BBC article is saying:
So, if no currency available-could Greece experience deflation? That might be a good thing. The only way Greece can recover is by lowering the cost of the goods and services it sells to foreigners/tourists. A boost in tourism will decrease unemployment. Just “lending” more and more money to Greece will not resolve anything.
Here is what Greece owes the citizens of each of the Eurozone countries (& totals i mil. euro)
Luxembourg 1637 euro (900)
Holland 1099 euro (18.500)
Finland 1064 euro (580)
Austria 1058 euro (9000)
Germany 1055 euro (85.200)
Belgium 1026 euro (11.500)
France 989 euro (65.100)
Italy 934 euro (56.800)
Spain 834 euro (38.800)
Slovenia 728 euro (1500)
Malta 705 euro (300)
Estonia 532 euro (700)
Ireland 521 euro (2400)
Slovakia 499 euro (2700)
Cypress 466 euro (400)
Portugal 403 euro (4200)
Latvia 250 euro (500)
Litauen 238 euro (700)
Denmark 0 (0) - because Denmark voted no to the Eurozone (Blow to euro as Danes vote No), against the advice of all economic experts and to the shock and horror of the politicians of all the major parties. Otherwise Denmark would undoubtedly have been at the top of the list. So much for the advice of experts and horror of politicians.
All along it’s beens stated that Germany is the primary lender. Yet they’re only fifth in this list. Are the Germans lending the Greeks money through other means? I expected them to be #1 by a mile (oh, wait, this is Europe. A kilometer and a half?).
If you mean right now I don’t think they are in a deflation scenario at this time. If you mean after the Grexit and once they create their own currency I don’t think that would be the case either, though pretty obviously their currency, whatever it is (Drachma probably) would fall as soon as it was openly traded, though I’m sure the Greeks will try and leverage it against the Euro initially (one of the reasons they have the banks closed is to prevent folks from taking out everything they have). They would have some sort of currency holiday where people will be expected to exchange their Euros for Drachma, but I’m sure the initial exchange rate will suck and I doubt everyone will trade in their Euros they have stuffed in their mattresses.
I doubt deflation would be a good thing, regardless…and it’s hard to see how any of this would increase the tourist trade in the short or medium term.
Germany has a larger population, so if you are going Euros per person it’s going to be further down the list. But yes, Germany (check out the chart at the bottom showing who holds Greek debt) is the primary holder of Greek debt atm.
True enough. No-one knows what the fallout for the EU/wider world will be. The latest “informed” opinion leans towards rather limited adverse consequences. However, much depends on the contagion factor. Contagion depends upon the human psyche. Virtually no-one can fully predict the human psyche of the herd.
He has lots to say. Here’s my takeaway. Rich states like Massachusetts, New York and California routinely transfer lots of funds to poorer states like Kentucky and South Carolina. Poor states in the US don’t get lectured on structural reform: they simply are taxed less per capita and receive more federal government payments per capita.
Germany isn’t so keen on having a similar arrangement with Portugal and Greece. That they transfer funds to East Germany is enough for them. That’s ok. But it suggests that Germany and Portugal shouldn’t share a common currency, like Connecticut and Florida do. There’s a way of handling local declines in economic activity: you devalue your currency. Greece can’t do that… yet.
The second thing is that the Greek economy is small. So don’t worry about this unless you vacation in Greece. If you do, click the link above. Or you can worry about contagion. See Fuzzy_wuzzy’s point. Vacationers in Italy shouldn’t care, as Italy won’t leave the Euro this year.
[QUOTE=Measure for Measure]
He has lots to say. Here’s my takeaway. Rich states like Massachusetts, New York and California routinely transfer lots of funds to poorer states like Kentucky and South Carolina. Poor states in the US don’t get lectured on structural reform: they simply are taxed less per capita and receive more federal government payments per capita.
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Apples to oranges though, since the EU is only an economic union, and can’t and doesn’t set internal policy between sovereign nations, while the US is both a political as well as economic ‘union’ wrt the states.
There is, of course, another way to handle it, which would be some sort of United States of Europe (or something similar), where you have a federal system that is over all of the individual states. I don’t think that this is political possible, but without that the EU is always going to run into this issue and the rather ad hoc way Germany is attempting to impose austerity to mitigate future issues.
Obviously what you are getting at is that Greece (etc) shouldn’t be in an economic union (EU) that also has a shared currency (i.e. the EZ) since they can’t ‘fix’ the issue by devaluing their currency and inflating their way out of their problem. Of course, they wouldn’t have been in this problem had they hadn’t joined in the first place because no one would have loaned them the money they borrowed to deficit spend their way into it.
I’d definitely worry about my vacation in Greece this summer. There is a lot of unrest that is boiling up there, and a ton of uncertainty. Whether the Greeks vote on Monday yes or no there is going to be a lot of contention over it, and if no and depending on how they negotiate leaving the EZ (and maybe the EU) it’s going to be pretty grim. I think Italy, however, would be fine to visit (as would Spain or Portugal…I’m actually planning to go to Spain at the end of the year).
They are now basically telling Merkel to fuck herself. I’m glad they are and I hope she does. Media bias on this is pretty outrageous. Good luck to the Greeks if they choose another way to enforced austerity.
The Germans, as they always are when they get a sniff of continental power, are relentless and cruel.
Somehow Greece and Europe functioned before the euro, it won’t be a wild surprise if it does after.